10-K: Hong Yuan Holding Group Reports Initial Revenue Amidst Significant Losses and Going Concern Doubts in 2024 Annual Filing

Hong Yuan Holding Group, a development-stage company, reported its first significant revenue of $245,572 in 2024, primarily from consolidated Chinese VIEs, but continues to face substantial net losses, an accumulated deficit of $97.8 million, and a going concern qualification from its auditors.

Summary

• Hong Yuan Holding Group, incorporated in Nevada in 2001, is a development-stage company focused on establishing a new business in supply chain management services.
• The company reported revenue of $245,572 for the year ended December 31, 2024, compared to Nil in 2023, primarily due to the consolidation of Chinese Variable Interest Entities (VIEs) which began generating revenue in Q2 2024.
• Cost of goods sold for 2024 was $152,675, resulting in a gross profit of $92,897.
• Operating expenses increased by 22.5% to $189,198 in 2024 from $154,476 in 2023, mainly due to higher general and administrative expenses (rent, personnel, office) partially offset by a slight decrease in professional fees.
• Net loss for 2024 decreased by 37.6% to $96,437, compared to a net loss of $154,464 in 2023, driven by the increase in gross profit.
• As of December 31, 2024, the company had an accumulated deficit of $97,784,280 and a net working capital deficit of $243,326.
• Cash balance as of December 31, 2024, was $46,291, up from $5,983 in 2023.
• Operations are primarily funded by the CEO and majority shareholder, Xudong Li, and minority owners of the Chinese VIEs.
• The company's auditors have expressed a going concern opinion due to recurring losses, accumulated deficit, and negative working capital.
• The company acquired 100% equity interest of Hongyuan International Holding Group Co., Ltd. (Hongyuan HK) from Xudong Li for HK $500,000 (approximately $64,103) on October 1, 2024.
• Hongyuan HK subsequently entered into agreements to assume financial and operating control of Fengcuiyuan Chang Technology Development Co., Ltd (Fengcuiyuan) and its subsidiaries, including Rongcheng (Sichuan) Supply Chain Management Co., Ltd (Rongcheng) and Chongqing Xuchang Qingrong Trading Co., Ltd. (Xuchang).
• The business focuses on wholesale and internet sales of fast-moving consumer goods, including food, daily necessities, and electronic products, and operates offline brand-authorized stores primarily selling Baijiu products, red wine, cigarettes, and teas.
• As of December 31, 2024, stores in Chongqing and Jiangyou were operational, with a Leshan store in site selection and decoration.
• The company had 10 full-time employees as of December 31, 2024.
• The company identified material weaknesses in its internal control over financial reporting due to lack of segregation of incompatible duties and insufficient Board of Directors representation, attributed to inadequate staffing and limited working capital.

Sentiment

Score: 3

Explanation: The company is in a precarious financial position with a significant accumulated deficit, working capital deficit, and a going concern qualification. While it has started generating revenue and has a strategic plan, the fundamental financial health and internal control weaknesses present substantial risks. The reliance on related-party loans for funding is also a concern.

Positives

• The company generated its first significant revenue of $245,572 in 2024, a substantial increase from Nil in 2023, indicating the commencement of principal operations through the consolidation of Chinese VIEs.
• Net loss decreased by 37.6% from $154,464 in 2023 to $96,437 in 2024, driven by the new revenue streams.
• Cash balance increased significantly to $46,291 as of December 31, 2024, from $5,983 in 2023, supported by capital contributions from the CEO and minority owners of Chinese VIEs.
• The company has a clear strategy to focus on supply chain management services for fast-moving consumer goods, including established brands and plans for private label products.
• The CEO, Xudong Li, has committed to favorably entertain funding corporate expenses for approximately 24 months through interest-free loans, providing a near-term liquidity buffer.

Negatives

• The company continues to incur net losses, with an accumulated deficit of $97,784,280 as of December 31, 2024.
• A significant net working capital deficit of $243,326 as of December 31, 2024, indicates short-term liquidity challenges.
• The independent auditors have expressed a going concern opinion, raising substantial doubt about the company's ability to continue operations.
• Material weaknesses in internal control over financial reporting were identified, specifically a lack of segregation of incompatible duties and insufficient Board of Directors representation, which could impact financial reliability.
• The company has no current arrangements or assured sources for additional financing beyond the CEO's potential loans, and existing shareholders are not anticipated to provide future financing.
• The company has never paid cash dividends and has no plans to do so in the foreseeable future.
• The company's business model for stores changed in June 2025, shifting from holding shares to providing investment funds as loans, which may alter risk and return profiles.

Risks

• Substantial doubt about the ability to continue as a going concern due to recurring net losses, accumulated deficit, and negative working capital.
• Dependence on debt and equity financing, with no assurance that additional funding will be available on acceptable terms or at all.
• Risk of dilution for existing shareholders if future financing is obtained through equity issuances.
• Uncertainty regarding the CEO's commitment to provide future interest-free loans, as there is no written agreement.
• Material weaknesses in internal control over financial reporting, including lack of segregation of duties and insufficient Board representation, which could lead to financial misstatements or fraud.
• Inability to anticipate all cybersecurity threats or implement effective preventive/detective measures in a timely manner, despite management's efforts.
• Intense competition and price shocks in the alcoholic beverage market from e-commerce and new retail channels, squeezing profit margins for traditional distribution.
• Price chaos and difficulty maintaining consumer loyalty for thirdand fourth-tier brands due to reliance on non-standard channels and fragmented pricing strategies.
• Survival pressure and transformation challenges for individual brick-and-mortar stores due to rising labor costs (projected 12% annual increase by 2025) and rent increases, compressing gross profit margins to 15%-20%.
• Backward business models in over 70% of individual stores, lacking digital tools and professional product selection capabilities, leading to narrowing survival space.
• The alcohol industry's structural growth trend of volume reduction (10%-15% annually) and price increase, which may impact sales volume despite higher pricing strategies.

Future Outlook

The company expects to continue incurring losses and negative cash flows from operating activities for the foreseeable future, primarily due to costs associated with being a public reporting company. Management plans to seek additional equity or debt financing to sustain operations until profitability is achieved, if ever. The primary focus before December 31, 2024, was on distributing products of well-known brands. After successful registration of its own brand in March 2025, the company has established contract manufacturing cooperation with well-known liquor manufacturers and is currently in production. The business model for stores changed in June 2025, where the company will fund store openings as loans to be recovered from future profits, rather than holding shares. The Leshan store is in the process of site selection and decoration.

Management Comments

• "We may continue to incur losses in the foreseeable future and there can be no assurances that we will ever establish profitable operations."
• "Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever."
• "Mr. Xudong, the CEO and principal shareholder of the Company, would favorably entertain funding, through loans, corporate expenses for approximately 24 months. Any loans by Mr. Xudong would be on an interest-free basis, documented by a promissory note and payable only upon consummation of a business combination transaction."
• "Although management will periodically re-evaluate this situation, at this point, it considers that the risk associated with such a lack of segregation of duties and the potential benefits of adding employees to segregate such duties are not cost justified."
• "We intend to hire additional accounting personnel to assist with financial reporting as soon as our finances will allow."

Industry Context

The company operates in the supply chain management services sector, with a significant focus on the fast-moving consumer goods market in China, particularly alcoholic beverages. The industry is experiencing significant channel transformation, with e-commerce and new retail platforms causing low-price dumping and squeezing traditional distribution profits. Online sales of alcoholic beverages exceeded 30 billion yuan in 2025, accounting for 29% of the total industry scale, with live-streaming sales growing at 137% annually. This puts pressure on traditional pricing and compresses profit margins. There's also a trend of increasing brand concentration, with CR6 liquor enterprises capturing 86% of profit share in 2024, up 31% from ten years ago, squeezing out smaller brands. Consumers are demanding stronger brand endorsement. Terminal brick-and-mortar stores face severe survival pressure due to rising labor costs (projected 12% annual increase by 2025) and rent, leading to declining sales for over 50% of alcohol retailers by 2025 and forcing a shift towards chain and O2O models. The alcohol industry is in a 'volume reduction and price increase' phase, where high-end positioning drives sales growth (20-30% annually) despite decreasing sales volume (10-15% annually).

Comparison to Industry Standards

• The company's entry into the supply chain management of fast-moving consumer goods, including alcohol, aligns with the broader industry trend of optimizing logistics and distribution, leveraging technology like AI, IoT, blockchain, and robotics, though specific technological implementations are not detailed.
• The company's strategy of developing offline brand-authorized stores and providing goods to cooperative e-commerce platforms directly addresses the industry's channel transformation, attempting to bridge traditional retail with online presence, similar to O2O models adopted by other retailers.
• The company's plan to distribute products of well-known brands like Moutai, Wuliangye, and Luzhou Laojiao, and later introduce its own private label, reflects an understanding of the increasing brand concentration and consumer demand for brand endorsement in the Chinese liquor market.
• The company's business model of funding stores as loans, rather than holding equity, is a unique approach to mitigate direct operational risks while still participating in the retail ecosystem, contrasting with traditional chain operations that typically involve direct ownership or franchising.
• The company's reported accumulated deficit and going concern issues are significantly below industry standards for established, profitable supply chain or retail companies, highlighting its early development stage and financial instability compared to mature competitors.

Corporate Governance

Legal Proceedings

• Neither the company nor any of its officers, directors, or holders of five percent or more of its common stock is a party to any pending legal proceedings.
• To the best of the company's knowledge, no such proceedings by or against the company or its officers, directors, or major stockholders have been threatened or are pending.

Related Party Transactions

• During the year ended December 31, 2024, the company's current majority shareholder, Xudong Li, advanced $37,609 to the company as working capital.
• As of December 31, 2024, the company owed its current majority shareholder $251,889, which includes $64,103 for the acquisition of Hongyuan HK.
• As of December 31, 2023, the company owed its current majority shareholder $150,175.
• These advances are non-interest bearing and are due on demand.
• The acquisition of 100% equity interest of Hongyuan International Holding Group Co., Ltd. (Hongyuan HK) on October 1, 2024, was from Xudong Li, the majority shareholder of the company, for HK $500,000 (approximately $64,103) or equivalent common stock.
• Hongyuan HK subsequently entered into a series of agreements with Fengcuiyuan Chang Technology Development Co., Ltd (Fengcuiyuan), in which Xudong Li controls 95% of its equity interest, making this a transaction between entities under common control.

Stakeholder Impact

• **Shareholders:** Face significant dilution risk from potential future equity financing. Existing shareholders are not expected to provide future financing. The going concern qualification raises substantial doubt about the company's long-term viability and the value of their investment. The change in business model for stores (funding as loans instead of equity) may alter the risk/reward profile for shareholders.
• **Employees:** The company has 10 full-time employees. The financial instability and going concern issues could impact job security and future growth opportunities. Management intends to hire additional accounting personnel, which could create new roles.
• **Customers:** The company aims to attract and convert partners and members by offering high-quality, reasonably priced products with good services, value-sharing plans, and a zero-cost/worry-free return policy, which should benefit customers by enhancing satisfaction and repurchase willingness.
• **Suppliers:** The company's focus on direct procurement methods with manufacturers and cooperation with firstand second-tier brand distributors suggests a direct relationship with suppliers, but the company's financial instability could pose payment risks to them.
• **Creditors:** The company's significant accumulated deficit, working capital deficit, and reliance on related-party loans, coupled with the going concern qualification, indicate high credit risk for any potential new creditors. The existing related-party loans are non-interest bearing and due on demand, which could be called at any time.

Next Steps

• Management plans to seek additional debt and/or equity financing to sustain operations.
• The company intends to hire additional accounting personnel to address material weaknesses in internal control over financial reporting.
• The Leshan store is in the process of selecting a site and undergoing decoration.
• After successful registration of its own brand in March 2025, the company has established contract manufacturing cooperation with well-known liquor manufacturers and is currently in production.
• The company will continue to fund the opening of stores, with investment funds recovered as loans from future store profits, following a business model change in June 2025.

Key Dates

Recommendation

Keywords

Supply Chain Management, Fast-Moving Consumer Goods, FMCG, Alcoholic Beverages, Baijiu, China Market, SEC Filing, 10-K, Going Concern, Development Stage Company, Internal Controls, Related Party Transactions, Wholesale, E-commerce, Retail, Hongyuan Holding Group